Identify control deficiencies for acquisitions and for cash disbursements. After you decide on the deficiencies, include each deficiency in the bottom portion of one of the two matrices.

INTEGRATED CASE APPLICATION—PINNACLE MANUFACTURING: PART IV

The purpose of Part IV is to obtain an understanding of internal control and assess control risk for Pinnacle Manufacturing’s acquisition and cash disbursement transactions.
a. Familiarize yourself with the internal control system for acquisitions and cash dis-
bursements by studying the information in Figure 12-12 and Figure 12-13.
b. Prepare a control risk matrix for acquisitions and a separate one for cash disburse-
ments using Figure 12-3 on page 381 as a guide. A formatted control risk matrix is
available online. The objectives should be specific transaction-related audit objectives
for acquisitions for the first matrix and cash disbursements for the second matrix. See
pages 623–627 in Chapter 18 for transaction-related audit objectives for acquisitions
and cash disbursements. In doing Part IV, the following steps are recommended:

1. Controls
(a) Identify key controls for acquisitions and for cash disbursements. After you de-
cide on the key controls, include each control in one of the two matrices.
(b) Include a “C” in the matrix in each column for the objective(s) to which each con-
trol applies. Several of the controls should satisfy multiple objectives.
2. Deficiencies
(a) Identify control deficiencies for acquisitions and for cash disbursements. After
you decide on the deficiencies, include each deficiency in the bottom portion of
one of the two matrices.
(b) Include a “D” in the matrix in each column for the objective(s) to which each con-
trol deficiency applies.
3. Assess control risk as high, medium, or low for each objective using your best judg-
ment. Do this for both the acquisitions and cash disbursements matrices.

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